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Oil in Global Economy Series: Oil futures curve flips to backwardation

The future curve of both global benchmark Brent and North American benchmark WTI has flipped to backwardation for the first time in more than three weeks, as OPEC members, along with non-OPEC countries set to reduce supplies by 1.2 million barrels per day beginning January.

Backwardation means that the price of oil in the cash market is changing hands at a higher price compared to the future oil prices or near-term future prices are trading higher than longer-term future prices. Backwardation is largely considered as bullish for the commodity markets.

Brent is currently trading at $59.6 per barrel in the cash market, whereas the February future is trading at $58.25 per barrel. The cash price is higher than all the near-term futures contracts until February 2020. WTI, on the other hand, is trading at $49.9 per barrel, which is higher than the January future, which is at $48.7 per barrel.

 

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